Corporate finance around the world Corporate finance- not homogenous Stock market- plays bigger part in some

countries than in others; shareholder returns as corporate goal- different extents in different countries; corporate governance different; takeovers more prevalent in certain countries; different accounting rules, tax system; role of banks in some countries. Many factors are common across borders. World equity market Equity market capitalization- total value of all of companies ordinary shares in terms of stock market value. See in table Market capitalization/GDP developed countries very high. US-182% UK-203% Japan-105% France-103%

Finland dominance of one key company- NOKIA Dutch market- Royal Dutch Shell, unilever. Stock market- institutional shareholders, individual shareholders. In practically, all European countries, institution share shareholders have, over the recent past, become important at the expense of private individuals Growth of pension funds over past decades has become speculator. The strong portfolio-orientation of institutional investors in UK contrasts with the control orientation of this investor group in ex Germany.

UK and US- hostile takeovers mounted via purchases in the official market- play an important role in the world market. In Europe- these are far less the norm. Ex.: Germany, Netherlands and Belgiumtrue. Sweden- 4 successful hostile offers during 1980s- period of substantial local corporate restructuring. Pension funds- different levels of importance in the pattern of investment in different European Countries. In EU- Foreign assets as a significant percentage of pension fund investment- were concentrated in UK, Irish, Belgian and Dutch funds. Equity holdings of pension funds- in 1990 an 1980- very high- 80$% Germany 6 %. Largest markets- longer histories. UK- 1698.

1900- Interesting feature of markets-prevalence of cross border investmentEuropeans investors heavily in the less developed countries- the Americas, Africa, Russia, South-eastern Europe, Turkey and Far East. Firms based overseas issued many of the securities traded in London and Paris. Even in such advanced economies as Canada and USA. Europeans owned a large proportion of all stocks and bonds. Later in 20th century- impact of war, the Wall Street crash, Great Depression, currency restriction, protectionism and Cold war made investors become insular and international investment did not return as a major force until the 1970s.

World bond markets Rivaling equities in terms of world market size , bonds are important financial instruments. Bond- promissory note, under seal, to pay money. These instruments- issued by governments and corporations. Debt-maturity of 12 months or more. Year 2000- world bond market- $31 trillion. - World equity market- $36 trillion. Developed countries-active markets trading government and corporate bonds. In many countries, size and trading volumes exceed equity. Bond markets-enable long term borrowing and lending. Most countries-active money markets-short term lending and borrowing, trading in securities such a T-bills, certicates of deposit and commercial paper. Bonds denomininated in the worlds 2 main currencies-USD, EUR, JPY-88% of total world bond markets. Government-55% of world global bond market. 26.4% domestic corporate bonds. 15.1% Eurobonds. 3.6% -foreign bonds. Eurobonds- issued internationally in international markets. Foreign bonds and Eurobonds, like domestic bonds are issued mainly by governments as well as companies.

Foreign bonds- issued in domestic markets but by nonresident entities. Around 2/3 of all outstanding bonds are Government Issue and 1/3 corporate bonds. Japan, Germany and Italy- larger bond than equity markets. Equity markets of UK, Switzerland, Australia, Sweden, and South Africa- far larger than bond markets. UK- bond market- world 5th largest and it was less than 1/3 of the size of its equity markets. Why difference in equity and bond market sizes? Governments-large bond issuers, so differences in macroeconomic policy, government borrowing and budget deficits strongly influence national bond market sizes. Countries with larger public sectors and nationalized industries have more government debt. Corporate sector-companies operating in countries with bank-based financial systems (commercial bank representation- Germany, Japan, Italy)-larger emphasis on debt than equity financing. This has fostered larger corporate bond markets. Balance between short term debt v/s bonds. Japanese bond market- would be even larger but for its govt heavy reliance on short term borrowing to finance its budget deficit. US bond market- grew significantly from 1990 onwards with a shift away from bank lending towards capital markets as the key source of financing. Start of 2000US-bank loans-10% of financial assets, Japan-40% Euro zone countries-50%.

Corporate governance and corporate finance Corporate governance-how a company is directed and controlled and in particular with the role of the directorate and the need for ensuring that there is an effective framework for accountability of directors to owners. Corporate finance and financial market liquidity-important topics. Corporate governance-agency problem of capitalism. Credibility problem-firms face when they seek to convince outside investors to contribute funds. -How to ensure that management does not steal investors contributed resources-to pay themselves high salaries etc. Role of corporate governance-ensure that resources are not dissipated but applies effectively into profitable investment opportunities.

Summary: 1. Corporate finance differs in many ways from one country to another. In UKfar greater emphasis upon stock market sourced equity finance than in other countries. France and Germany- ex. Rely to a greater extent upon bond markets. 2. Corporate governance- how a company is directed and controlled ad how a framework for accountability of directors to owners is established. 3. Like constrating acc rules- different countries have different tax system.